Rafferty's Dick Bove Downgrades Goldman Sachs

Richard Bove of Rafferty Capital Markets downgraded shares of Goldman Sachs Group Inc GS from Buy to Hold with a price target slashed from $288 to $221 after the company reported its first-quarter results.

According to Bove, Goldman Sachs' top-and-bottom-line miss was a "shock" considering none of its closest Wall Street peers "fared this poorly" in the quarter. In fact, the analyst suggested that the first quarter is typically the best performing of the four. Unfortunately, in Goldman Sachs' case, a poor first quarter now implies there is a good chance that subsequent quarters won't be as strong.

So, Now What?

Bove pointed out that Goldman Sachs' executive team has undergone a "very significant" change, including Gary Cohn's appointment in Washington and Harvey Schwartz leaving his title as chief executive officer and replacing Cohn as chief financial officer.

The analyst believes that these changes will take time to resolve. But at the same time, the company is also facing a "hostile environment" for seven reasons:

1. At the current pace, there is unlikely to be a tax cut in 2017.
2. The tariff situation from the White House remains unclear.
3. There is unlikely to be any major deregulation (such as the elimination of the Volcker Rule).
4. Hundreds of billions of dollars have "fled" mutual funds.
5. The global economy is moving at a "slow pace."
6. Mergers and acquisition activities may be slowing down.
7. Goldman Sachs' rivals may now boast capital advantages over Goldman.

For these reasons, the analyst concluded that Goldman Sachs remains an "incredibly capable company" but at the end of the day the stock's narrative has now shifted to a "wait until next year story."

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Earnings Ramp Up, But International Uncertainty Signals Caution _____ Image Credit: By Daniel Schwen (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons